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Friday, January 4, 2019

Karsan Value Funds: 2018 Q4 Results

Karsan Value Funds (KVF) is a value-oriented fund, as described here. Due to securities regulations, the fund is not open to the public at this time. Should that change in the future, there will be an announcement on this site.

For the fourth quarter ended December 31st, 2018, KVF lost $1.59 per share, reducing the value of each share to $24.80. This is a poor result on an absolute basis, but this 8% decline (after subtracting currency gains of $0.59 in the period) outperformed the 14% and 11% declines in the S&P 500 and S&P/TSX indices over the same period. Considering KVF contains a disproportionate number of smaller companies, this was a particularly good relative result as the Russell 2000 declined on the order of 20% this quarter.

There are two main reasons for the relative outperformance. First, KVF's portfolio was no longer concentrated in the US, due to valuation concerns I have previously discussed. Second, KVF entered the quarter with a sizable cash balance, due to the lack of perceived opportunities from the point of view of its manager.

This situation changed tremendously during the quarter. A number of new opportunities have sprung up thanks to the general decline in asset prices. As such, KVF's cash balance is now as low as it has been in many years, and the fund is close to being fully invested. Furthermore, a large percentage of KVF's new investments were in the US, as the declines in certain US sectors were particularly pronounced.

That's not to say any rebound is imminent. The market can definitely drop more - a lot more - before returning to an uptrend. But valuations have improved significantly in many cases. As such, I'm more positive on the long-term outlook than I have been in some time.

KVF's income statement and balance sheet are included below (click to enlarge). Note that securities are marked to market value, and amounts are in thousands of $CAD: